Payroll items comprise the wages, deductions, and benefits, etc. that are used to build the paycheck, track liabilities, and determine what accounts should be affected when paying employees. This article describes the various options that are available when creating or editing a payroll item.
Payroll Calculation Step
In order to produce the totals for net pay, employee withholding, employer taxes, etc, the SchoolInsight Financials system divides payroll items into nine different calculation steps. These calculations are internal and automatic, calculated in order of how they are listed on the select list. For example, pre-tax deductions will always be calculated before withholding.
Payroll Item Type
The payroll item type describes the nature of the payroll item and may convey important information about how to handle the payroll item. For example: a Health Insurance item needs a vendor, but a Wage item does not; TRS (employee) and TRS (employer) have different impacts on TRS creditable wages; Medicare Tax Tables automatically apply IRS regulations to the calculation.
Algorithms determine how the value of the payroll item is calculated. Algorithms range in complexity from a Simple Amount to Percentage Method Tax Tables, which references an employee’s W-4 and federal income tax withholding guidelines.
All payroll item types except Wages, Absence/Time Off, and Non-Taxable Pay require a vendor to indicate to whom the liabilities are owed. After running payroll, the Liabilities report will help keep track of when each vendor is paid.
Enter two accounts to indicate which accounts are affected when this item is used on payroll. For items that require an Expenditure and Liability Account, the expenditures account will be debited and the liability account will be credited when payroll journal entries are created. The liability account will be debited and an asset account will be credited when employees are paid. For items that require a Reduce Liability Account and Increase Liability Account, the former should be set to the liability account you use for wages. The latter will be increased upon payroll journal entry creation and decreased when liabilities are paid.
Modifiable per Employee
Some payroll items can be modified for each employee. This is most commonly used with Simple Amount payroll items, allowing different employees to pay different prices for things like insurance deductions. If these modifications are not acceptable, uncheck this box.
SchoolInsight Financials calculates five different subtotals to determine income subject to taxation, TRS, IMRF, FICA, and Medicare. Every payroll item must be marked as adding to, subtracting from, or not contributing to each of the five subtotal types.
For example, a pre-tax deduction for health care costs should subtract from taxable income. That is to say, an employee earning $2000 gross in a pay period but paying $100 in pre-tax health insurance costs would only be taxed on the remaining $1900.
Some subtotals get complicated when the same payroll item is used for multiple types of employees. For example, a certified teacher’s “salary” item will add to Taxable Pay, TRS and Medicare. It will not contribute to IMRF or FICA. However, a non-certified employee’s “salary” item will add to Taxable Pay, IMRF, FICA, and Medicare. It will not contribute to TRS. In this situation, you can adjust the subtotal types when setting up individual employee payroll items.